No monetary penalties in tobacco case

But federal judge rules cigarette makers lied about smoking risks

By

WilliamSpain

CHICAGO (MarketWatch) -- A federal judge on Thursday imposed a broad range of restrictions on tobacco companies, including prohibiting the use of the words "light" or "low-tar" on packaging, but said she didn't have the legal authority to force cigarette makers to pay big-money damages in the government's racketeering case against the industry .

The government had asked U.S. District Judge Gladys Kessler of Washington, D.C. to make the companies pay $10 billion for stop-smoking programs.

In a 1,652-page opinion, Kessler ruled that defendants including Altria Group's
MO, -0.40%
Philip Morris USA and Reynolds American
RAI
had lied for decades about the risks of smoking and ordered them to make "corrective statements" about the addictiveness of smoking and its adverse health effects.

The statements must appear in stores and packaging as well as on corporate Web sites and through a paid advertising campaign in newspapers and television, Kessler ruled.

Kessler also held that the companies must make public a wide array of documents about the case, and other cases, along with internal correspondence and marketing plans, exempting only "trade secrets."

Philip Morris and Altria said they will appeal the ruling, claiming it isn't "supported by the law or the evidence presented at trial." Reynolds American had no immediate comment.

"The conclusion that PM USA and Altria are reasonably likely to engage in future wrongdoing is flawed in light of the profound and permanent changes in the way cigarettes are marketed today," William Ohlemeyer, Altria's vice president and associate general counsel, said in a statement.

While some aspects of the ruling could prove expensive, Kessler didn't order the companies to fund multibillion-dollar smoking cessation programs, a result that helped drive shares of tobacco companies sharply higher in after-hours action. Altria was up as much as 2.8% to $82.99 and Reynolds American as much as 2.2% to $65.

Kessler said she didn't have the authority to order financial penalties,

"We are pleased with the court's finding of liability on the part of the defendants, but disappointed that [it] did not impose all of the remedies sought by the government," the Justice Department said in a written statement. "Nevertheless, we are hopeful that the remedies that were imposed by the court can have a significant, positive impact on the health of the American public."

In addition, the order permanently bars companies from "making, or causing to be made in any way, any material false, misleading, or deceptive statement or representation, or engaging in any public relations or marketing endeavor that is disseminated to the United States public and that misrepresents or suppresses information concerning cigarettes."

That includes "conveying any express or implied health message or health descriptor for any cigarette brand either in the brand name or on any packaging, advertising or other promotional, informational or other material."

Kessler specifically barred the use of marketing buzz words including "low tar," "light," "ultra light," "mild," "natural," and "any other words which reasonably could be expected to result in a consumer believing that smoking the cigarette brand using that descriptor may result in a lower risk of disease or be less hazardous to health than smoking other brands of cigarettes."

She also ordered that "no defendant shall sell or otherwise transfer or permit the sale or transfer of any of its cigarette brands, brand names, cigarette product formulas or cigarette businesses" to any person or entity unless it is already a fellow defendant or is willing to submit to the court's jurisdiction.

Kessler ordered defendants to pay court costs and told the government to submit its bill within 30 days.

Edward Sweda, a senior attorney for the Tobacco Products Liability Project said "it is very encouraging that from this day forward, tobacco company defendants will be known as adjudicated racketeers. If fully implemented, [the ruling] will go a long way toward ending the companies' most egregious misconduct."

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